Credit is the basic foundation of our economic structure and is how the great majority of society access capital for such things as buying a home or a car, to start a business, to buy appliances, furniture and all of life's other essential needs, goals and dreams. Our economy and banking system are totally dependent upon credit worthy buyers. It is how a consumer can buy a home for $200,000.00 without having the money in the bank to do so, or a new car perhaps. It is how college tuitions are paid, businesses are started and financed, and the list goes on and on. In short credit is how society gains access to capital. A good credit report means access to more money, while a bad credit report means access to little to no money.

 

People with bad credit profiles have less access to capital and therefore grow at a much slower pace financially than people that have good credit. A person with good credit can get a mortgage loan in 5 weeks or less for a house that has $30,000.00 worth of  equity that is available for immediate use, while it would take a person that has bad credit who is unable to buy a home years to save the same amount of money, and unfortunately most never do. How much capital a person has access to depends on how much income they receive in addition to their good credit, but make no mistake, regardless of how much income a person receives it would still be extremely difficult to get a seat at the lending table without having a good credit profile. 

Loans are given out daily to consumers and businesses for various reasons, and the lenders use your credit report to gauge whether they will lend you money based on your past payment history with previous lenders. Your credit profile shows how many times you were 30 days behind on a loan, every creditor who you had an agreement with and failed to pay, if you have high credit card usage, and many other things. It also shows items such as current and previous employers and current and previous addresses. This information reveals if a person job hops or moves around a lot which can speak to the consistency and stability of a person relative to their age, which is also information on your credit report. This can also possibly be weighed in lending decisions and have an effect on whether a person is approved for a loan. 

The immediate and future financial damages are astronomical for consumers who do not take the time and educate themselves in the area of credit. It will either accelerate or slow down your financial growth and progress in life.  Proper use of credit is inexplicably imperative to increasing your wealth because of the access it gives you to capital. This is what is referred to as "leverage" because you are leveraging your good credit history with the bank to lend you more money. The leverage you have is the years of keeping your word with previous lenders and paying back your loans as agreed as shown on your credit report. When lenders see this, they consider you low risk for loans because of your integrity or history of keeping your word to repay. In essence, your word or good credit profile serves as collateral with bank for the loan if it is good enough, and you have the financial ability to pay back the loan. Without a good credit profile your access to money will be very limited which will make it harder to get important things in life accomplished and increase your wealth.

 

Having a good credit profile and becoming a responsible borrower starts with education. We must first become familiar with the information that is obtained in our credit profiles and how our scores are made up, before we can begin to understand what a good credit report is and how to maintain it.  Having a better understanding of credit and how it works will make you more successful in maintaining it, growing it, and utilizing it properly.  Click here to see the 5 factors that determine your credit scores and tips on how to properly maintain it. Click here to reach a consultant for a free credit evaluation.